Clara Lending: Reinventing the Mortgage Industry
I congratulate Clara Lending on its public announcement today of over $27 million in financing. I am personally a seed investor in Clara and have served as an advisor to its Co-Founders Jeff Foster and Lukasz Strozek since the company’s inception in 2014.
The process of getting a residential mortgage today remains inefficient, painful and downright archaic. Although emails and PDFs have replaced the Post Office and paper documents, the fundamental processes of getting a mortgage have been somehow stunted in maturing to our modern, online world.
Home ownership is a probably the single most important financial event in a consumer’s life; a path to building family, wealth, and community. And yet the wildly inefficient $10 trillion mortgage market stands as a stubborn, painful, unavoidable impediment to homeownership for most Americans. Anyone who has ever purchased a home with a mortgage can relate to this pain. It is downright awful. From beginning to end, the mortgage process assails would-be homebuyers with a set of outdated, tedious, almost never-ending and often wholly unnecessary, duplicative steps. Virtually nothing in the mortgage experience today feels modern; the mortgage market was somehow skipped over by the innovation that has optimized so many other aspects of our lives through technology.
A more transparent, frictionless path to homeownership is something nearly everyone and every institution wants: consumers, the federal government, local governments, interest groups, lenders, Wall Street, government agencies, etc. Indeed, trillions of dollars of subsidies to homeownership are embedded in the Fannie Mae, Freddie Mac, and the FHA. And yet the very protections designed to prevent crises like 2008 and protect consumers have in fact made it harder than ever for strong homebuyers to secure a mortgage.
Clara’s vision is bold and ambitious. Clara aims to streamline the process of getting mortgage by building a vertically integrated, digitally native mortgage lender that puts the consumer experience first. From getting a rate quote to closing, Clara educates the consumer each step of the way and guides the consumer along a fully transparent, intuitive roadmap frictionlessly towards close over its mobile and web applications. The process is a beautiful, modern, structured, technology-enabled workflow that contrasts dramatically with myriad of disjointed, bureaucratic and largely offline processes of traditional mortgage lenders.
Clara’s elegance is borne of the unique experience of its co-founders, Jeff Foster and Lukasz Strozek who merged their complimentary experiences at the intersection of housing finance policy and technology. During the US housing crisis, Jeff served a senior policy advisor to Treasury Secretary Tim Geithner focused specifically on housing finance reform. In that capacity, Jeff witnessed firsthand the devastating impact of America’s fundamentally broken mortgage machine. A broken mortgage industry led to a broken economy, mass unemployment, and a global recession. However, in that experience Jeff gleaned the core insight and inspiration that would become Clara as he joined forces with Lukasz.
Jeff and Lukasz officially teamed-up in 2014 to begin work on Clara. From the outset, their ambition was as audacious and grand: to fashion a vertically integrated, online-first, de novo mortgage lender……no small task. The technical challenges alone were daunting but Lukasz is somewhat of a technical savant (described by Cloudera co-founder Jeff Hammerbacher as the best coder in Mark Zuckerberg’s class at Harvard). Lukasz, who has both an MS in Computer Science from Harvard and an MBA from Stanford, had been the Senior Technology Architect at Bridgewater Associates, a $150 billion global macro hedge fund in Connecticut. In that capacity, Lukasz developed deep technical proficiency in using technology to render efficiency, transparency and order on some of the most complex and dynamic financial workflows; in effect, engineering the spinal cord for Bridgewater’s operations. Paired together, Jeff and Lukasz merged Jeff’s policy and regulatory expertise and relationships with Lukasz’s acumen in designing and simplifying complex financial systems and workflows. A rare combination indeed…..but exactly the recipe needed to design the antidote to one of the the most broken, most regulated, most backward financial markets: the US mortgage market. Together, Jeff and Lukasz aimed to diagnose: (1) why the US mortgage machine broke, and (2) how it could be fixed through technology.
They concluded the system broke not because of insufficient sources of capital to fuel American mortgages. The US housing crisis was not wrought by broken capital markets but instead by broken processes on the front lines of how consumers interact with lenders. This breakdown was systemic in 2008 but the same fundamental inefficiencies in how consumers interact with lenders have persisted to today…..and that is exactly what Jeff, Lukasz and the team at Clara have endeavored to fix.
Many new mortgage lenders have emerged in the aftermath of the housing crisis like LendingClub, SoFi, and many more. But their solutions initially focused on capital markets innovations: enfranchising new sources of capital into the mortgage markets. By contrast, Clara, resolved to fix the very core of the problem, the broken consumer experience that was the root of mortgage market’s inefficiency.
That ambition is daunting as Clara needed to build an entirely new mortgage originator from scratch. Clara needed to holistically reimagine the traditional mortgage bank and deconstruct a complex series of mortgage origination workflows in a truly online format. But Jeff and Lukasz have built an unparalleled technical team to do so and paired that team with an innovative, forward-looking team of operators and capital markets specialists from the mortgage industry itself. And in the process they have now developed and launched the most complete digitally native mortgage originator that began operations 5 months ago.
We could not be more thrilled with Clara’s progress and we are proud and supportive believers in the company’s ambitious and noble vision.